The R&D Tax Credit

Tax incentives for your innovation

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Over 60 industries can qualify!

What is the R&D Tax Credit?

The Research and Development (R&D) Tax Credit is a government-sponsored tax incentive offered to companies who create or improve a product or process in the course of their business.

The credit dates back to 1981, when it first became available to taxpayers on a temporary basis. In 2015, when the Protecting Americans from Tax Hikes (PATH) Act was put in place, the Research and Development (R&D) credit became a permanent part of the tax code and with it, revised qualifications that greatly expanded the eligibility for businesses to qualify. With these changes, qualifying small businesses may be eligible to claim the Payroll Tax Credit to offset some of their payroll tax liability.

Many businesses are unaware that their daily operations could qualify for a dollar-for-dollar tax credit towards their annual income and/or payroll tax liability, irrespective of industry or company size. Additionally, most states offer an R&D credit that can supplement the federal R&D credit, and qualifying businesses can claim both!

What activities qualify for the R&D Tax Credit?

  • Conducting all R&D activity in the US
  • Developing or designing new and innovative products or processes
  • Improving existing products, processes, or prototypes
  • Reviewing the potential of several alternatives or methods during the development or improvement process

Examples of qualifying expenses

  • Wages: If you have existing W2 employees who spend time performing or supervising R&D activity, a % of their compensation can be included as a qualified expense.
  • Contracted costs: Many times early-stage companies need to hire contractors to perform technical projects. Up to 65% of contracted R&D expenses can be included as a qualified research expense.
  • Leasing of Computer Space: Certain leased computer expenses such as cloud computing server, platform, or costs can be included in the credit calculation.
  • Materials & Supplies: Did you consume any raw materials or supplies in R&D prototyping? These may qualify to be included in the credit calculation.

The four-part test

To be eligible for the R&D Tax Credit, the IRS has enforced a four-part test to determine qualified R&D activity. An activity must meet all four parts to be considered a qualifying research activity. The four parts are:

The four-part test

To be eligible for the R&D Tax Credit, the IRS has enforced a four-part test to determine qualified R&D activity. An activity must meet all four parts to be considered a qualifying research activity. The four parts are:

  • Business Component Test: Has the company demonstrated that the information being discovered was to develop a new or improved product, process, computer software, technique, formula, or invention, which is to be held for sale, lease, license, or further used in its trade or business?
  • Uncertainty Test: Has the company demonstrated that it tried to learn something new about the product or process being changed in order to improve it and has it demonstrated that the product or process could not be improved without going through this discovery process?
  • Technology Test: Can the company demonstrate that its development of a business component relied upon the principles of the physical or biological sciences, engineering, or computer science?
  • Experimentation Test: Has the company demonstrated that it went through a process of elimination, trial and error, or other evaluation of alternatives in order to arrive at the new or improved product or process?

Use our R&D Tax Credit calculator to find out how much you can potentially save

You can save up to:

$

*This is just an estimate

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R&D claim process

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Your Innovation Incentive: The R&D Tax Credit

Explore the tax saving benefit of the Research & Development (R&D) Tax Credit, irrespective of your company size or industry.

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Maximize your tax benefits with State R&D Tax Credit

Most states offer an R&D Tax Credit that can supplement the federal R&D credit, resulting in additional tax savings for qualifying businesses. Click below to learn more about state credits.

Maximize your tax benefits with State R&D Tax Credit

Most states offer an R&D Tax Credit that can supplement the federal R&D credit, resulting in additional tax savings for qualifying businesses. Click below to learn more about state credits.

R&D Tax Credit for startups & small businesses

The R&D Tax Credit can help startups and small businesses offset some of their payroll tax liability. In order to claim the Payroll Tax Credit, companies must meet certain requirements, including qualifying as a Qualified Small Business.

To be considered a Qualified Small Business, your company must not have gross receipts for any years preceding the 5 tax year period ending with the credit year. In addition, the year you are claiming, gross receipts must be below $5M. Find out if you are eligible to claim the Payroll Credit.

R&D Tax Credit for startups & small businesses

The R&D Tax Credit can help startups and small businesses offset some of their payroll tax liability. In order to claim the Payroll Tax Credit, companies must meet certain requirements, including qualifying as a Qualified Small Business.

To be considered a Qualified Small Business, your company must not have gross receipts for any years preceding the 5 tax year period ending with the credit year. In addition, the year you are claiming, gross receipts must be below $5M. Find out if you are eligible to claim the Payroll Credit.

Why choose Leyton?

Allow our experience to unleash your potential!

+ 60

Industries Served

+ 20

Years of Experience

+ 100

R&D Tax Credit Experts

Why choose Leyton?

Allow our experience to unleash your potential!

+ 60

Industries Served

+ 20

Years of Experience

+ 100

R&D Tax Credit Experts

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Get your R&D Claim estimate today!

Contact us

Get your R&D Claim estimate today!

Contact us